- Email: [email protected]
Adapting to higher energy prices
Conference reports Adapting to higher energy prices Third Annual Conference of the International Association of Energy Economists: Adapting to Higher Energy Prices- International and Interregional Perspectives, University of Toronto, Canada, 21-24 June 1981
Some 250 members of the IAEE met for this annual conference of the Association held on the attractive, compact and convenient city-centre campus of the University of Toronto. (Note that the attributes of the campus, in terms of location and form, provide a lesson in energy economy). Most of the participants were North American, with but a handful of European members and even fewer from other parts of the world. In spite of this bias in the participation, the programme was orientated effectively to the conference's global theme. Of more than 40 speakers, about one-third came from outside Canada and the USA, whilst most of the speakers from these two countries had significant international experience, either in their academic research or as a result of their work for international corporations and/or organizations. Canadian and US energy issues were by no means excluded from the discussion, but neither did they dominate it, except in those sessions where the subject was essentially North American related; as, for example, on coal aspects of future energy supply. The recent deregulation of oil in the USA and the consequential closer incorporation of the country's energy economy into the world energy system, coupled with the continued unwillingnessof the Canadian government to do likewise (and so become the butt of international criticism on energy pricing questions) will ensure that energy affairs in North America are increasingly related to international considerations. Deregulation of oil in the USA was, indeed, of central interest to partici-
330
pants. Most I A E E members present clearly saw it as one of the most significant economic blessings to have descended on the world in recent history (and certainly since the last annual conference of the Association). The continued existence of some regulatory practices (such as the ban on US crude oil exports, which leads to a misallocation of resources, given that the easy market for Alaskan oil in Japan cannot be served so that high costs have to be incurred instead in shipping the oil in US tankers to the US Gulf and Eastern coasts), was delicately avoided in the general feeling of euphoria over the decontrol of oil prices. Here, indeed, is a well-monitored economic experiment which is in the process of demonstrating the hitherto sorely tested validity of price/demand relationships; and for this opportunity the assembled energy economists duly gave thanks.
Tax regimes Consternation, if not exactly shock/horror, was on the contrary the response to the revelations by Canadian, U K and US economists that Canadian, U K and Norwegian - if not U S - tax regimes on oil and gas developments were thwarting the oil and gas production processes. The companies' attitudes to such opportunities (viz give us the money and we'll get the oil) were contrasted with governments' apparent views on oil companies' revenues from oil/gas production (viz give us the money and we'll forget the oil). To offset these bad tidings, however, was the new version of the old poem, 'How they brought the Good News
from Paris to Toronto'. The 'good news' in this case was that of the way in which penally high oil prices are now effectively constraining demand in the industrialized world: and 'they', the economists from the International Energy Agency, in spite of their message, came not on horseback, but in energy-thirsty, multiengined, jumbo jets - and, of course, back in the same style - to report the acclaim with which the wisdom of energy conservation had been received in the New World. Near fervour (in cool, academic economic terms, that is) greeted the details of the I E A forecasts, soon to be published, countries' use of oil had probably peaked in 1979 and that contraction in the industry demand at the rate of 1.32% per annum could now be confidently predicted up to the year 2000. The I E A and the world's energy economists now appear to embrace the idea of contraction of the oil industry even more wholeheartedly than the sometime heretics of the 'Club of Rome' and the 'Limits to Growth'!
Demand Thus, industrial world demand side adaptation to the fundamental changes in the world of oil over the last decade was generally presented, and largely accepted, as a process which is well on the way to successful completion. Conference papers and discussion revealed much less optimism over three other important components of the energy outlook. First, there was a message of massive uncertainty over the way in which O P E C member countries will adapt to the sharp decline in the demand for their oil. A n economist from the leading surrogate OPEC member country, Norway, was convinced that the producing nations would share his country's idiosyncratic view that the less oil they had to export, the greater would be the joy in the corridors of power and affluence in the OPEC countries. Many more participants dwelt on the dominant role of Saudi Arabia in the world oil market. Their dwelling on the
ENERGY POLICY December 1981
Conference reports theme, however, was invariably followed by the conclusion that that country's behaviour is necessarily unpredictable by economists, given the unique position it holds in the international economy (viz near infinite potential supplies of a highly valued commodity, the returns from the sale of which the country has little use for). Political scientists, if not Middle East experts, are required to predict Saudi A r a b i a ' s behaviour and they were not at the Conference. Second, the potential for expanding the supply of alternatives to OPEC oil was, in general, very pessimistically presented and reviewed. Non-OPEC oil potential was given little attention either because its production appears to be effectively constrained by national policies (as in Norway, Canada, the U K and Mexico, etc) or because of the expected overwhelming difficulties of getting the necessary investment and know-how for exploitation into most Third World countries. Several papers showed that natural gas production expansion is constrained by institutional and/or pricing issues. This includes production in North America where, in both the U S A and Canada, capacity is shut in, and Western Europe where indigenous output is not allowed to expand beyond present levels in spite of the discovery of large new resources. Prospects for coal, though shown as favourable in some regions were not generally thought to be as good as indicated in reports such as the MIT World Coal Study of 1980. ~ Alternative energies received little attention. Even discussion of nuclear power was restricted to a part of the single concurrent technical session devoted to all alternative energies. In the plenary sessions nuclear power was hardly mentioned. The impact of the Three Mile Island accident clearly continues to dominate the expectations of North American energy economists on the prospects for this energy source which, by contrast, still occupies centre-stage in European energy outlook discussions. Even in Canada, where nuclear power has had a largely trouble free history, the nuclear industry was dismissed as one which is dependent on government
ENERGY POLICY December 1981
subsidies, rather than as one which contributes to government's revenues on a large scale - as in the case of all other Canadian energy production. Third, there was a great deal of concern and pessimism about non-OPEC developing countries' adaptation to higher energy prices. This emerged from a wide range of papers: from those on the now very familiar consequences of oil price increses on the prospects for Third World development; to those which considered the lack of an indigenous energy supply response in many such countries leading to prospective oil import needs of 10 million bbl/day by the year 2000; and, most important, to those which dealt with the apparent failure of higher energy prices to constrain demand to the degree to which this has happened in the industrialized
countries. This last issue undoubtedly emerged from the conference as the one to which energy economists - and others - would be justified in devoting the greater part of their capacity to analysis and policy recommendations. In any period, except the very short term, it is clearly the energy issue with greatest potential for repercussions on international economic and political relationships.
P.R. Odell Erasmus University Rotterdam The Netherlands 'Carroll L. Wilson, project director, CoalBridge to the Future, Report of the World Coal Study, Ballinger, Cambridge, MA, USA, 1980.
An overview of the uranium industry Sixth Annual Symposium of the Uranium Institute, London, 2-4 September 1981.
In some ways, the Uranium Institute's annual conferences are typical of industry-organized affairs. One is well wined and dined. There is wheeling and dealing in the corridors. One can almost recite certain speakers' presentations before they get up on the podium and open their mouths. If one knows their position in the industry, one knows their hobby horses. However, the Uranium Institute is so close to the centre of one of the world's most politically sensitive industries, that its conferences have to reflect this fact. In addition, these meetings are organized by people willing to stretch their delegates intellectually by including one or two speakers from outside the industry who, all the same, have important messages for it. The result is a conference which is a satisfying barometer of the way the industry is evolving, even if the barometer's needle may point in different
directions for distinctive parts of the industry. For instance, on the evidence of this conference, the uranium producers are feeling suicidal; the electric utilities are sharpening their arguments about nuclear safety; and there is an undercurrent of optimism among the diplomats who see at least part of the proliferation safeguards log-j am breaking up in a way which looks quite promising (the Baghdad raid notwithstanding).
Uranium producers The proceedings offered little but gloom for the producers.At best, the Institute's basic supply-demand analysis to 1995 merely suggests that expanded uranium production may be needed in the later 1980s. However, this is not much cheer to an industry which is currently contracting (particularly in high-cost U S A , faced with
331
Some 250 members of the IAEE met for this annual conference of the Association held on the attractive, compact and convenient city-centre campus of the University of Toronto. (Note that the attributes of the campus, in terms of location and form, provide a lesson in energy economy). Most of the participants were North American, with but a handful of European members and even fewer from other parts of the world. In spite of this bias in the participation, the programme was orientated effectively to the conference's global theme. Of more than 40 speakers, about one-third came from outside Canada and the USA, whilst most of the speakers from these two countries had significant international experience, either in their academic research or as a result of their work for international corporations and/or organizations. Canadian and US energy issues were by no means excluded from the discussion, but neither did they dominate it, except in those sessions where the subject was essentially North American related; as, for example, on coal aspects of future energy supply. The recent deregulation of oil in the USA and the consequential closer incorporation of the country's energy economy into the world energy system, coupled with the continued unwillingnessof the Canadian government to do likewise (and so become the butt of international criticism on energy pricing questions) will ensure that energy affairs in North America are increasingly related to international considerations. Deregulation of oil in the USA was, indeed, of central interest to partici-
330
pants. Most I A E E members present clearly saw it as one of the most significant economic blessings to have descended on the world in recent history (and certainly since the last annual conference of the Association). The continued existence of some regulatory practices (such as the ban on US crude oil exports, which leads to a misallocation of resources, given that the easy market for Alaskan oil in Japan cannot be served so that high costs have to be incurred instead in shipping the oil in US tankers to the US Gulf and Eastern coasts), was delicately avoided in the general feeling of euphoria over the decontrol of oil prices. Here, indeed, is a well-monitored economic experiment which is in the process of demonstrating the hitherto sorely tested validity of price/demand relationships; and for this opportunity the assembled energy economists duly gave thanks.
Tax regimes Consternation, if not exactly shock/horror, was on the contrary the response to the revelations by Canadian, U K and US economists that Canadian, U K and Norwegian - if not U S - tax regimes on oil and gas developments were thwarting the oil and gas production processes. The companies' attitudes to such opportunities (viz give us the money and we'll get the oil) were contrasted with governments' apparent views on oil companies' revenues from oil/gas production (viz give us the money and we'll forget the oil). To offset these bad tidings, however, was the new version of the old poem, 'How they brought the Good News
from Paris to Toronto'. The 'good news' in this case was that of the way in which penally high oil prices are now effectively constraining demand in the industrialized world: and 'they', the economists from the International Energy Agency, in spite of their message, came not on horseback, but in energy-thirsty, multiengined, jumbo jets - and, of course, back in the same style - to report the acclaim with which the wisdom of energy conservation had been received in the New World. Near fervour (in cool, academic economic terms, that is) greeted the details of the I E A forecasts, soon to be published, countries' use of oil had probably peaked in 1979 and that contraction in the industry demand at the rate of 1.32% per annum could now be confidently predicted up to the year 2000. The I E A and the world's energy economists now appear to embrace the idea of contraction of the oil industry even more wholeheartedly than the sometime heretics of the 'Club of Rome' and the 'Limits to Growth'!
Demand Thus, industrial world demand side adaptation to the fundamental changes in the world of oil over the last decade was generally presented, and largely accepted, as a process which is well on the way to successful completion. Conference papers and discussion revealed much less optimism over three other important components of the energy outlook. First, there was a message of massive uncertainty over the way in which O P E C member countries will adapt to the sharp decline in the demand for their oil. A n economist from the leading surrogate OPEC member country, Norway, was convinced that the producing nations would share his country's idiosyncratic view that the less oil they had to export, the greater would be the joy in the corridors of power and affluence in the OPEC countries. Many more participants dwelt on the dominant role of Saudi Arabia in the world oil market. Their dwelling on the
ENERGY POLICY December 1981
Conference reports theme, however, was invariably followed by the conclusion that that country's behaviour is necessarily unpredictable by economists, given the unique position it holds in the international economy (viz near infinite potential supplies of a highly valued commodity, the returns from the sale of which the country has little use for). Political scientists, if not Middle East experts, are required to predict Saudi A r a b i a ' s behaviour and they were not at the Conference. Second, the potential for expanding the supply of alternatives to OPEC oil was, in general, very pessimistically presented and reviewed. Non-OPEC oil potential was given little attention either because its production appears to be effectively constrained by national policies (as in Norway, Canada, the U K and Mexico, etc) or because of the expected overwhelming difficulties of getting the necessary investment and know-how for exploitation into most Third World countries. Several papers showed that natural gas production expansion is constrained by institutional and/or pricing issues. This includes production in North America where, in both the U S A and Canada, capacity is shut in, and Western Europe where indigenous output is not allowed to expand beyond present levels in spite of the discovery of large new resources. Prospects for coal, though shown as favourable in some regions were not generally thought to be as good as indicated in reports such as the MIT World Coal Study of 1980. ~ Alternative energies received little attention. Even discussion of nuclear power was restricted to a part of the single concurrent technical session devoted to all alternative energies. In the plenary sessions nuclear power was hardly mentioned. The impact of the Three Mile Island accident clearly continues to dominate the expectations of North American energy economists on the prospects for this energy source which, by contrast, still occupies centre-stage in European energy outlook discussions. Even in Canada, where nuclear power has had a largely trouble free history, the nuclear industry was dismissed as one which is dependent on government
ENERGY POLICY December 1981
subsidies, rather than as one which contributes to government's revenues on a large scale - as in the case of all other Canadian energy production. Third, there was a great deal of concern and pessimism about non-OPEC developing countries' adaptation to higher energy prices. This emerged from a wide range of papers: from those on the now very familiar consequences of oil price increses on the prospects for Third World development; to those which considered the lack of an indigenous energy supply response in many such countries leading to prospective oil import needs of 10 million bbl/day by the year 2000; and, most important, to those which dealt with the apparent failure of higher energy prices to constrain demand to the degree to which this has happened in the industrialized
countries. This last issue undoubtedly emerged from the conference as the one to which energy economists - and others - would be justified in devoting the greater part of their capacity to analysis and policy recommendations. In any period, except the very short term, it is clearly the energy issue with greatest potential for repercussions on international economic and political relationships.
P.R. Odell Erasmus University Rotterdam The Netherlands 'Carroll L. Wilson, project director, CoalBridge to the Future, Report of the World Coal Study, Ballinger, Cambridge, MA, USA, 1980.
An overview of the uranium industry Sixth Annual Symposium of the Uranium Institute, London, 2-4 September 1981.
In some ways, the Uranium Institute's annual conferences are typical of industry-organized affairs. One is well wined and dined. There is wheeling and dealing in the corridors. One can almost recite certain speakers' presentations before they get up on the podium and open their mouths. If one knows their position in the industry, one knows their hobby horses. However, the Uranium Institute is so close to the centre of one of the world's most politically sensitive industries, that its conferences have to reflect this fact. In addition, these meetings are organized by people willing to stretch their delegates intellectually by including one or two speakers from outside the industry who, all the same, have important messages for it. The result is a conference which is a satisfying barometer of the way the industry is evolving, even if the barometer's needle may point in different
directions for distinctive parts of the industry. For instance, on the evidence of this conference, the uranium producers are feeling suicidal; the electric utilities are sharpening their arguments about nuclear safety; and there is an undercurrent of optimism among the diplomats who see at least part of the proliferation safeguards log-j am breaking up in a way which looks quite promising (the Baghdad raid notwithstanding).
Uranium producers The proceedings offered little but gloom for the producers.At best, the Institute's basic supply-demand analysis to 1995 merely suggests that expanded uranium production may be needed in the later 1980s. However, this is not much cheer to an industry which is currently contracting (particularly in high-cost U S A , faced with
331